Hyatt Corporation

views updated May 29 2018

Hyatt Corporation

200 West Madison Avenue
Chicago, Illinois 60606
U.S.A.
(312) 750-8023
Fax: (312) 750-8550

Private Company
Incorporated: 1957 as Hyatt Hotels Corporation
Employees: 50,000
Sales: $2.40 billion

Owned, operated, and privately held by the Pritzker family of Chicago, the Hyatt hotels are a worldwide chain that has made business travelers and the development of spectacular “fantasy” properties its niche. The two most important historical events associated with the Hyatt Hotel chain are the development of its trademark high-rise atrium lobbies, first pioneered at Peachtree Plaza in Atlanta in 1967, and the collapse of the sky walk at the Kansas City, Missouri, Hyatt in 1981.

The Pritzker family built the company as a result of the “favored customer” rapport between First National Bank of Chicago, which was eager to lend the fledgling company money, and father Abraham Nicholas (A.N.) Pritzker, as well as the teamwork of his sons Jay, Robert, and Donald, according to an in-depth portrait of the deliberately low-profile family in Fortune April 25, 1988. Jay graduated from Northwestern University at 18, and completed a law degree at Northwestern while concurrently serving in the navy, based at Glenview Naval Air Station, following his service as a flight instructor during World War II. After serving in Washington, D.C., with the federal agency that ran foreign-owned companies whose assets had been seized during the war, Jay went into business for himself, buying a lumber and plywood operation in Eugene, Oregon.

In 1953 Robert Pritzker, an industrial engineer, took over management of Colson Company, his brother Jay’s recently acquired small manufacturing company in Elyria, Ohio, and successfully restructured the ailing company within a short time. Their brother, Donald Pritzker, joined them in their management company Pritzker & Pritzker (P & P) when he finished law school in 1959.

In 1957 Jay Pritzker bought a small airport motel in Los Angeles named “Hyatt House” after its original owner, Hyatt von Dehn. Within four years, Jay expanded the single property into a chain of six hotels and made Donald manager of operations, reporting to Jay. According to Fortune, Don “had a captivating smile, an uproarious laugh, and a wit that would show up a stand-up comedian.” Don died in 1972 at the age of 39 of a heart attack, and Hugh M. Friend Jr., Jay’s brother-in-law, became president.

Hyatt’s great success during the years 1957–1967 was attributable to the deal-making skills of Jay, the managerial ability and personality of Don, and to its interest in innovative hotel design. In 1967, a watershed year in Hyatt’s history, the company went public and also bought an unfinished hotel in Atlanta with an unusual atrium, designed by the architect John Portman. The Portman atrium was a 21-story interior courtyard, designed so that each hotel room entered off the high-rise open space, set off with a central glass elevator leading to all floors, and hanging green vines growing from each floor’s balcony. The overall effect was revolutionary in hotel design, because the Portman interior eliminated the impersonal hallway with rows of doors and brought an open-air congeniality, with the spin-off of greater safety, feeling of security, and warmth to the hotel interior. The Portman lobby became the hotel’s signature, and advanced the concept of public space in buildings.

Peachtree Center in Atlanta, where the hotel is located, consists of 15 buildings, more than ten million square feet. John Portman’s development had begun with converting an old building into furniture showrooms, which led him to build new, bigger buildings which became the Atlanta Merchandise Mart in 1961. The mart stimulated downtown business activity, created a rebirth of the city’s center, and brought new business. Portman then built an office tower, which helped increase demand for hotel rooms. Portman’s design failed to convince financial backers. The developers of the large hotel property were in financial trouble when the Pritzkers took over. After the Hyatt Regency opened, its occupancy rate reached 94.6%. In 1977, Hugh Friend left the company, and Jay Pritzker became president, in addition to his responsibilities as chairman and chief executive officer. The family moved Hyatt’s headquarters to Chicago, where it could oversee matters more closely. They gradually bought back the public shares of stock, and took the company private in 1979. Thomas Jay Pritzker, Jay’s son, became president in 1980.

The National Bureau of Standards called the 1981 collapse of two skywalks at the Kansas City Hyatt Regency Hotel the most devastating structural collapse ever to take place in the United States. Insurance industry experts in Insurance Review compared it to the eruption of Mount St. Helen’s. Nearly five years after the collapsed sky walk killed 114 people and injured 229, insurance carriers and the judicial system had not settled all outstanding claims. More than 2,000 lawsuits for a total of $120 million were settled between 1981 and 1986. In June 1986, 900 individuals remaining in a federal class action suit against the hotel settled all claims for $1,000 each. In August 1986 the Missouri Court of Appeals ruled on the issue of insurer liability by concluding that all insurance companies with policies on the hotel would participate in payment of damages. Hyatt was managing the hotel for Hallmark Properties, its builder. “Gross negligence and misconduct” were finally attributed to engineers Daniel Duncan, Jack Gillum, and their former company, G.C.E. International Inc., whose “hurry-up” design system caused them to be pouring concrete on one part of the building while finishing the design on the rest of the building.

Design innovation continues to set Hyatt apart, along with its top-ranked, cohesive family management teams, and the cluster of separate companies that make up the Pritzker family portfolio, all located within its headquarters at 200 West Madison or within the city block; each company has a distinct job. Pritzker & Pritzker, for example, is “actually a small investment bank whose 17 professionals serve one client,” according to Fortune’s profile. One of the few partners is Penny, Donald’s daughter, and a lawyer with Pritzker & Pritzker, who is concentrating on developing retirement housing called Classic Residence by Hyatt Corporation. Another new target for the Hyatt Hotels is the “urban villages” concept, where scaled-down versions of the Regency prototype design will be built in the urban fringe area market. For the Hyatt International subsidiary, the developer Chris Hemmeter has built elaborate “fantasy” properties in Hawaii. Hemmeter’s style is to add special effects like crashing waterfalls, grotto bars, and free-roaming peacocks. The $360 million Hyatt Regency Waikokola, which develped the concept of the fantasy resort, will have 1,244 rooms in three towers on 60 acres. The atrium of one tower will have ten small islands covered with trees and tropical birds. A seven-acre lagoon will be stocked with reef fish for snorkelers, and miniature deer will roam free on the grounds.

Hyatt has conducted futures research on business travelers according to Adam Aron, the senior vice president of marketing for Hyatt Hotels, interviewed in American Demographics for January 1990, and seeks to apply new technology to guests’ complaints on things as small as the irritation of the theft-proof coathanger to a computer-controlled check-in where the guest’s credit card will serve as the door key, bypassing the front desk altogether. In research and development Hyatt has become the industry pioneer.

Every indication from the industry suggests that Hyatt hotels will continue to innovate not only in the area of building design and business travelers services such as “mini-camp weekends” where travelers can bring family along for a reduced price, but also in its joint-venture financing. The complexity of joint ventures is made far easier because the company is private. In 1989, the Chicagoans turned Yugoslavian debt into a five-star hotel venture, when First Chicago Bank invested directly in the project, continuing its “good customer” rapport with Hyatt. This first Yugoslavian debt-equity swap was a complicated transaction: Hyatt and the bank received majority ownership in return for $10.2 million in local currency that came from conversion of a three-times restructured debt held by the bank. Yugoslavia bought back its own debt, and the bank and Hyatt reinvested their profits into a new hotel project in Yugoslavia, with the bank completing another $25 million loan to the project. According to dealmakers, the involvement of First Chicago as a principal rather than as a broker for another entity persuaded the Yugoslavian government, which holds 49% interest against Hyatt’s 51% in the venture, to participate.

Much of the strength of future joint-venture financing for the so-called “trophy properties” that are the trademark of the Hyatt Hotel chain will come from the Japanese, according to Hyatt’s Laurence Geller, interviewed in the Cornell Hotel Administration Quarterly, in May 1989; Geller was executive vice president of Hyatt Development Corporation, a separate company from the hotels, and he observed in the interview that “a cadre of lenders follows Hyatt” internationally.

Hyatt Hotels, along with Hyatt International, P&P, the Hyatt Development Corporation, Marmon Group, and the rest of the Pritzker’s portfolio will undoubtedly continue to be well-managed by a harmonious family team, all of whom are also lawyers. The impressive business acumen of the Pritzker family is exemplified by the personal asset valuation of $25,000 of A.N. Pritzker’s estate when he died at 90 in 1986. It was A.N. himself who estimated that he sheltered more than $200 million in taxes alone by setting up the family trust prior to the 1985 tax laws which negated such advantages. Over nearly four decades the quiet clan has built an estimated wealth that exceeds $3.5 billion according to Fortune’s estimate. The success of the Pritzkers as managers and their properties undoubtedly will continue to use the Hyatt’s historic image as an industry pioneer as a central part of its corporate philosophy and strategy.

Principal Subsidiaries

Hyatt Hotels Corp.; Hyatt International Corp.; Hyatt Development Corp.

Hyatt Corporation

views updated Jun 27 2018

Hyatt Corporation

200 West Madison Avenue
Chicago, Illinois 60606
U.S.A.
(312) 750-1234
Fax: (312) 750-8550

Private Company
Incorporated: 1957 as Hyatt Hotels Corporation
Employees: 47,000
Sales: $3 billion (1994 est.)
SICs: 6513 Operators of Apartment Buildings; 6519 Lessors of Real Property, Not Elsewhere Classified; 7011 Hotels & Motels

Hyatt Corporation is one of the leading hotel companies in North America. Owned by the Pritzker family of Chicago, Hyatt manages or licenses the management of 87 hotels and 16 resorts (with a total of 55,000 rooms) in 83 cities in the United States, Canada, and the Caribbean. In addition to its resorts, Hyatt has also developed other special hotel concepts—the Grand Hyatt, the Park Hyatt, and Classic Residence by Hyatt. Grand Hyatts are large-scale, higher priced hotels located in culturally rich cities, with three in the United States (New York, San Francisco, and Washington, D.C.). Park Hyatts are modeled after small European hotels and are located in Chicago, Los Angeles, San Francisco, and Washington, D.C. The Classic Residence by Hyatt properties offer luxury retirement apartments for rental. Starting in the mid-1990s, the company has also sought growth opportunities in franchising, time-share properties, free-standing golf courses, and casinos.

The Founding Family

While Hyatt’s history as a corporate entity dates from 1957, the Pritzker family, who built and control Hyatt, has been active significantly longer. In the late 19th century, the Pritzkers immigrated to the United States from the Ukraine. Patriarch Nicholas Pritzker led them to Chicago, and in 1902 he founded Pritzker & Pritzker (P&P), the law firm that was to evolve into a management company and the center of the Pritzkers’ many and varied investments.

P&P grew, and by the late 1920s it had become a respected local firm. At that time, the Pritzkers’ best client was Goldblatt Brothers, the low-priced Chicago department store chain. Through the Goldblatts, Abram (A. N.) Pritzker, Nicholas Pritzker’s son, met Walter M. Heymann, then a leading Chicago commercial banker and an officer at the First National Bank of Chicago. In succeeding years A. N. Pritzker and Walter Heymann became business associates, and the powerful First National Bank of Chicago became the financial cornerstone of the Pritzker family empire.

Using a line of credit from the First National Bank, A. N. Pritzker began acquiring real estate, something he already knew about from P&P’s concentration on real estate reorganization. As his and the family’s investments grew, the law practice shrank, and in 1940 P&P stopped accepting outside clients, concentrating solely on Pritzker family investments. At the same time A. N. Pritzker began the family practice of sheltering his holdings within a dizzying array of interrelated family trusts.

Hyatt Emerges in the 1950s

The story of Hyatt Corporation begins with the succeeding generation of Pritzkers. By the early 1950s, Pritzker’s oldest son, Jay, had become active in the family business. Something of a prodigy, Jay Pritzker had graduated high school at 14. He finished college soon thereafter and then took a law degree from Northwestern University. During World War II he worked first as a flight instructor and later for the U.S. government agency that managed German-owned companies. In that position, he sat on corporate boards with men many years his senior. An accomplished deal-maker even in his earliest years, Jay would later become well known for his quickness at sizing up balance sheets and offering deals. Jay, beginning in 1957, made the initial deals that formed the basis for Hyatt.

Jay’s youngest brother, Donald Pritzker, finished law school in 1959, whereupon he joined P&P. Meanwhile, the middle brother, Robert Pritzker, earned an industrial engineering degree at the Illinois Institute of Technology in Chicago and later he and Jay would found and manage the Marmon Group.

In 1957 Jay Pritzker bought a small Los Angeles International Airport motel named Hyatt House after its original owner, Hyatt von Dehn. Within four years, Jay expanded the single property into a chain of six hotels and brought Donald Pritzker to California as manager of operations, reporting to Jay. The two made a good team, with Jay’s deal-making skills and Donald’s managerial ability and gregarious personality.

Hyatt grew rapidly during its first decade, opening small motor inns on the West Coast and one outside Chicago. The fledgling company went public in 1967, but the more important event of that watershed year was the opening in Atlanta of its first hotel with an atrium tower lobby, designed by the architect John Portman. The Portman atrium was a 21-story interior courtyard, designed so that each hotel room entered off the high-rise open space, set off with a central glass elevator leading to all floors, and hanging green vines growing from each floor’s balcony. The overall effect was revolutionary, because the Portman interior eliminated the impersonal hallway with rows of doors and brought to the hotel interior an open-air congeniality, with the spin-off of greater safety, feeling of security, and warmth. The Portman lobby became the hotel’s signature and brought Hyatt to widespread notice for the first time, as well as advancing the concept of public space in buildings.

What became the Hyatt Regency Atlanta was part of the 15building Peachtree Center. The developers of the large hotel property were in financial trouble and both Hilton and Marriott passed up opportunities to purchase the property before Hyatt did and finished construction. Soon after the hotel opened, its occupancy rate reached 94.6 percent.

Hyatt grew to a chain of 13 hotels by 1969. That year, the Pritzkers set up a separate company called Hyatt International Corporation to expand the chain overseas, with its first hotel the Hyatt Regency Hong Kong. In 1972, Donald died of a heart attack at the age of 39. Jay installed his brother-in-law, Hugh M. “Skip” Friend, Jr., as the new president.

Growth in the 1970s

The company grew rapidly during the 1970s aided by the signature Hyatt design and the innovations that a young staff was able to devise. Management went awry, however, when it was discovered in 1977 that Friend had spent $300,000 of company money on personal expenses. After Jay Pritzker demoted him, Friend left the company. Jay took over the duties of president, in addition to his responsibilities as chairman and chief executive officer. He also moved corporate headquarters to Chicago, where he could more closely oversee matters. Then, Jay gradually bought back the public shares of stock, taking the company private in 1979.

The 1980s

In 1980, Thomas Jay Pritzker, Jay’s son, became president, with Jay remaining chairman and CEO. The decade started promisingly with three significant firsts in 1980: the openings of the first Park Hyatt, the first Grand Hyatt, and the first Hyatt resort. Park Hyatts were designed as smaller luxury hotels with a European style, featuring personalized service, privacy, and elegance; the first one opened in Chicago near the Water Tower. Grand Hyatts were designed for the high-end market in culturally rich destinations, and featured sophisticated leisure, banquet, and conference facilities utilizing the latest technology. Hyatt Resorts were specially designed to reflect the local area of location and offered numerous activities and facilities for their guests; the first Hyatt resort was the Hyatt Regency Maui in Hawaii.

Then in 1981, two sky walks at the Kansas City Hyatt Regency Hotel collapsed, killing 114 people and injuring 229 in what the National Bureau of Standards called the most devastating structural collapse ever to take place in the United States. Between 1981 and 1986, more than 2,000 resulting lawsuits were settled for a total of $120 million. In June 1986, 900 individuals remaining in a federal class action suit against the hotel settled all claims for $1,000 each. Ultimately, “gross negligence and misconduct” were attributed to engineers Daniel Duncan, Jack Gillum, and their former company, G.C.E. International Inc., whose “hurry-up” design system caused them to be pouring concrete on one part of the building while finishing the design on the rest of the building. As was the case with most Hyatt hotels at this time, Hyatt was managing the hotel for its owner and builder, Hallmark Properties, so Hyatt was not held liable. Still it did not help to have the Hyatt name associated with such a disaster.

Hyatt’s growth slowed somewhat as the 1980s progressed, in part because hotel property owners began to object to the high fees Hyatt (and other hotel managers) received for managing the hotels without taking on any ownership risks. In order to keep the company growing, the Pritzkers launched a separate company to develop and build hotels and resorts, with Jay’s cousin Nick in charge.

During the decade, Hyatt Corporation also became involved in an indirect way in some of the Pritzkers’ nonlodging activities. Most notable was the 1983 purchase of the troubled Braniff airline through Dalfort, a Hyatt subsidiary. Under Dalfort, and with Jay Pritzker taking the lead, Braniff s losses were cut. But after a proposed merger with the also troubled Pan Am Corp. failed in 1987, Braniff was sold the following year.

During this time, Darryl Hartley-Leonard was named president of Hyatt Hotels Corporation, which had been reorganized as a subsidiary of the parent Hyatt Corporation. Another subsidiary was launched in 1989 under the name Classic Residence by Hyatt, with Donald Pritzker’s daughter Penny Pritzker as president. The Classic Residence properties were designed as luxury retirement centers with large rental apartments, housekeeping and gourmet meal service, and such activities as lectures by university professors. Aimed at the growing population of senior citizens, many of whom were looking for alternatives to institutional settings, Classic Residence centers opened initially in Reno, Dallas, and Teaneck, New Jersey. They were somewhat slow to fill, however, and the properties were typically half empty six months after opening.

Also in 1989, Hyatt introduced the Camp Hyatt program to attempt to attract more families to its somewhat businessoriented facilities. Under the program, Hyatt hotels began to offer numerous activities geared toward the toddler to preteen set, gave parents the option of taking a half-priced second room for their kids, and added menus and room service tailored for children.

1990s and Beyond

As the 1990s began, Hyatt’s growth was somewhat challenged by what analysts regarded as the reluctance of some owners of new hotels to hire Hyatt as managers, given the relatively high cost of running a glitzy Hyatt hotel. In fact, Hyatt was beginning to run the risk of losing existing contracts. Seeking to streamline operations, the company laid off more than 1,000 of its work force and then embarked on a detailed appraisal of the services it was offering at its hotels. Major cost savings were realized in several ways, such as moving to a centralized purchasing system, changing the turning down of beds from an automatic service to one that a guest had to request, cutting down on the number of choices offered on restaurant and room service menus, and outsourcing housekeeping and valet parking. The company also sought ways to attract frequent business travelers by augmenting its Gold Passport frequent stayer program and by offering additional business-oriented amenities such as in-room fax machines. By 1994, Hyatt’s gross operating profits had increased 45 percent from 1990 and the company was hearing fewer complaints from hotel owners about costs.

In 1994 Douglas G. Geoga, a lawyer who had served as head of development, was named president and CEO of Hyatt Hotels, with Hartley-Leonard remaining chairman. At about the same time, Hyatt began to pursue several new opportunities for growth, as competition from other chains grew fierce. Starting in 1994, the company moved cautiously into franchising for the first time. The first two franchised Hyatts were older hotels—the Hyatt Sainte Claire in downtown San Jose and the Hyatt Regency Pier Sixty Six in Fort Lauderdale. Scheduled to open in 1997 was a third franchised Hyatt, the Hyatt Regency Wichita, a new downtown convention hotel. Hyatt also entered, again cautiously, the crowded time-share property market with the opening in June 1995 of a resort known as Hyatt’s Sunset Harbor Key West.

Freestanding golf courses and casinos were additional ventures Hyatt entered in the mid-1990s. In January 1995 it opened on the island of Aruba its first freestanding golf course, which was also the island’s first golf course. In addition to developing freestanding courses, Hyatt also intended to manage existing golf courses near its hotels. Already involved in gaming through casinos it operated at some of its resorts, Hyatt moved into the riverboat gambling industry in 1994 with the opening of the Grand Victoria Casino in Elgin, Illinois, which generated revenues of $37 million during the last three months of that year. In 1995, Hyatt joined with Players International Inc. in offering to purchase the two riverboat casinos in New Orleans that had closed not long after opening. Hyatt was reportedly also looking for a site to move into the lucrative Las Vegas gambling mecca.

In addition to its pursuit of these growth opportunities, Hyatt also strived through innovation to retain its role at the forefront of the industry. In 1994 the company tested automated check-in kiosks in a number of its hotels. The kiosks, which allowed guests to check themselves in less than one minute and even dispensed room keys, proved a success and were subsequently expanded to other Hyatts. The company also successfully introduced a telephone check-in system.

In 1995 and 1996, Hyatt spent $200 million in renovating more than 30 of its hotels in North America. Among the enhancements were the replacement of worn-out furnishings, the improvement of access for peoples with disabilities, the addition of coffee kiosks and convenience stores to hotel lobbies, and the installation of modem ports, larger desks, and better lighting in guest rooms.

In the face of a highly competitive but increasingly lucrative hotel industry in the 1990s, Hyatt was certainly not resting on its reputation. While its acumen in managing hotel properties was rarely questioned, some industry observers did raise doubts about the company’s late entrance into such areas as time-shares and franchising. But with Jay and Thomas Pritzker still in charge of the parent company, the successful Pritzker track record boded well for Hyatt’s future.